Governors of the IMF and World Bank met in Washington DC from 17-19 April for a streamlined version of Spring Meetings, amidst a recognition of the deepening crises facing the global economy. The IMF’s Spring 2024 World Economic Outlook (WEO) report stressed that, “The forecast for global growth five years from now…is at its lowest in decades,” highlighting, “modest slowdown in emerging market and developing economies…in both 2024 and 2025.” Discussions at the meetings were contextualised by a fear of the consequences of continued geopolitical and trade fragmentation.
The WEO’s pessimistic forecast – from an institution often criticised for its overly optimistic projections (see Observer Autumn 2022) – made for an even more troubling read when considered alongside a report by the International Development Association (IDA), the Bank’s low-income country arm, titled The Great Reversal, which stressed that, “one in three IDA countries is poorer now than on the eve of the pandemic,” adding that stagnation could become more entrenched, creating further reversals. The report cautions, “Any further weakening in long-term global growth prospects would likely weigh heavily on the already subdued outlook for IDA countries.” However, these stark projections did not dent the IMF’s insistence that the debt crisis is not systemic and that countries face a liquidity, rather than a solvency, crisis. Ignoring its own global growth projections and betting on miraculous growth to solve the liquidity crisis, seems to be the Fund’s current political position (see Observer Spring 2024, Autumn 2022).
While the IMF continues to disregard Development Finance International’s research showing that “citizens of the Global South now face the worst debt crisis since global records began,” the Vulnerable 20 (V20) Group’s 68 countries stressed in their 16 April statement that, “High levels of external sovereign debt and debt service across the V20 economies are crowding out the ability of governments to…achieve their climate change and development goals” (see Dispatch Spring 2024).
Civil society marched in protest demanding debt cancelation, elimination of IMF surcharges, and ending harmful conditionalities and investments that promote fossil fuels and push countries into austerity.
Indeed, despite much discussion at the Spring Meetings about the obstacles to climate action, despite its urgency and the need to address growing inequality, the IMF’s Spring 2024 Fiscal Monitor highlighted the need for fiscal consolidation, once again ignoring its detrimental human rights and soial effects and available alternative policy options.
Brazil’s G20 presidency and civil society look to stimulate international financial architecture reform
In the context of these overlapping crises, the Spring Meetings didn’t pass without protests and demonstrations. Civil society marched in protest on 19 April demanding debt cancelations to address the climate crisis, elimination of IMF surcharges, and ending harmful conditionalities and investments that promote fossil fuels and push countries into austerity (see Report, Gambling with the planet’s future). Civil society organisations (CSOs) engagement this time around stood in stark contrast to official events. Civil Society Policy Forum (CSPF) events were well attended by BWIs staff, often with malleable and accommodating statements recognising problems and openness towards cooperation while some protestors – by contrast – were questioned and subjected to extra security procedures at the IMF. Lack of political will to tackle the scale of current crises will likely result in more demonstrations and social unrest in the future, as CSOs will try to exert more pressure on officials to achieve meaningful reform of the international financial architecture.
CSFP panels on debt relief, the contradictions between the Bank’s energy sector development policy lending conditionalities and its stated commitment to Paris alignment, Special Drawing Rights (SDRs), and the IDA21 replenishment provided ample evidence to question the predominant approach of the Bank and Fund. Women’s rights and other organisations continued their critical engagement with the implementation of the Bank and Fund’s gender strategies. Meanwhile several CSPF and parallel events also renewed calls for governance reform.
Providing a glimmer of hope in an otherwise bleak landscape, the recent victory of African states to begin the process of negotiating a tax convention at the UN (see Observer Winter 2023) was bolstered by current G20 president Brazil’s proposal to tax the super-rich – with a report expected for the G20 finance track meeting in July. Concerns about the democratic deficits at the IMF and World Bank and questions about how and where funds raised by this and other proposed global taxes would be administered are paramount.
The Brazilian G20 presidency was very active throughout the Meetings, hosting several events in which World Bank reform was discussed. At a high-level event on Brazil’s Sustainable Development Plan on 18 April, the panel – which included Secretary for Economic Policy, Guillerme Mello and Director of Infrastructure, Energy Transition and Climate Change Division of Brazil’s development bank, Luciana Costa – noted the need to move beyond discussions of World Bank reform to focus on wider multilateral development bank (MDB) reforms. The panel stressed the need for the Bank’s Roadmap to result on a much greater focus on national development plans, questioning why to date only states in the Global North seem able to rely on industrial policy.
During the same panel, Laura Carvalho, Open Society Foundations’ Global Director of Equity, stressed that a robust recapitalisation of the World Bank and MDBs by rich nations is essential to avoid borrowers having to choose between climate action and other urgent development needs. She underscored that such a choice has a high probability of leading to a backlash against climate action, as has been the case with Europe. Apropos of recapitalisation, several civil society partners raised the issue of the 2025 World Bank shareholding review and called for a fairer distribution of power within the institution.
IMF: Perpetuation of ‘gentleman’s agreement’ and resistance to reform
As the unopposed reappointment of Kristalina Georgieva for a second mandate as IMF Managing Director on 12 April demonstrates, substantive IMF governance reform remains a significant challenge (see Observer Spring 2024). While the formal process for appointing a new managing director began on 13 March, European Union finance ministers endorsed Georgieva a day before the process started, effectively shutting the door to other candidates. Whatever her capabilities, her unopposed reselection sends a clear signal about the refusal of dominant shareholders to heed long-standing calls for reform from the Global South and civil society. Those calls notwithstanding, the unwillingness to reform is also clearly seen in the Fund’s commitment for a new IMF quota formula by mid-2025, which appears to remain more an objective on paper, with discussions on formula review pending the implementation the 16th Quota Review reached at the end of last year and shareholder interests remaining as divergent as ever (see Observer Autumn 2022)
The tension between scaling up finance and governance reform at BWIs persists, with CSOs warning of the dangers of prioritising one over the other. However, it seems that even scaling up finance remains a difficult goal with reductions in New Arrangements to Borrow and Bilateral Borrowing Agreements failing to increase the Fund’s firepower despite the increase in country quotas. The funding constraints are evidenced in the lack of contributions to the Fund’s Poverty Reduction and Growth Trust Fund (PRGT) despite high demand.
The Fund aims to increase access to the Resilience and Sustainability Trust (RST) programme to 33 countries – compared to 18 currently. However, the requirement for a second IMF programme and the implications for borrowing beyond countries’ quota limits remain challenges, particularly given an apparent unwillingness to revisit eligibility criteria, which currently limits current RST eligibility to 26 countries. Progress on the RST is also challenged by the limited scope of its current interim review, which will go to the board next month. Additionally, while the RST aims for balance of payment support for climate shocks and green transitions to foster resilient and sustainable growth, UTC loan conditionalities in many cases encourage contradictory policies such as the expansion of fossil fuels, as shown in a new report from Belgium-based CSO Recourse launched at the Meetings.
The IMF expects demand for PRGT lending to reach nearly $40 billion this year, more than four times the historical average, but pledges from shareholders remain insufficient. A US bill passed in March will allow the US to lend up to $21 billion to the PRGT loan account, but that still leaves a gap of $19 billion with no other contributions forthcoming. The loan account of the PRGT is not the only problem. In order to increase funding via the PRGT, the programmes subsidy reserve account, which covers SDRs interest rate payments on behalf of borrowing countries must be increased either through shareholder grants or earned income. With difficulties in fundraising from shareholders, the Fund seems to be resorting to its accumulated charges from its precautionary balances (i.e. surcharges). If this approach is pursued, the Fund would effectively be using surcharge payments from its most indebted middle-income countries (MICs), like Ukraine and Argentina, to provide concessional funding to low-income countries (LICs). This would effectively create a feedback loop created by the unwillingness of Global North shareholders to provide urgently needed funds where MICs bear the burden of supporting other countries in crisis. Throughout the Spring Meetings, civil society continued to call for an abolition of IMF surcharges, which now affect 22 countries, according to new analysis from US-based CEPR.
While the Fund will conduct a review of its surcharges policy in the coming months, concerns remain that the PRGT funding gap will be a main roadblock to eliminating these harmful penalties. The IMF has argued that surpluses driven by surcharges are important to build up the Fund’s precautionary balances ― i.e. its capital base. Equally, shareholders argue that the policy is there to deter countries from borrowing over their quota share, meaning the objective of the policy is for it not to be used at all. This highlights a problematic contradiction: While the Fund has the goal to eliminate surcharges by deterring countries from over-relying on the IMF, it also considers surcharges a key part of its capital base.
While the need for funding remains acute, the Fund’s main asset – SDRs – remains underutilised. This Spring Meetings, there was no political will to re-channel SDRs through MDBs, and even less so for another SDR allocation, with the US Congress recently passing a bill that prevents the Fund from providing any financial assistance, including SDRs, to Iran. Given that SDRs are allocated to all shareholders based on their quota share, if the bill passes the US Senate, the US will effectively close the door to further general SDR allocations – underscoring the barriers to effective multilateralism at one of the key institutions in the international architecture.
The IMF has another important ace up its sleeve – its gold reserves which are severely undervalued by over $172 billion. The IMF also excludes $5.8 billion in profits from past gold sales from its precautionary balances as they are currently accounted for in its “special reserve” (different from the precautionary balances reserves). Were the Fund to follow the statistical accounting standards it recommends to its member countries, its precautionary balances would immediately increase by $177.6 billion. This is a relatively easy way to break out of the current financing needs deadlock, but it remains to be seen whether the Fund will resort to this measure – despite the increasing number and severity of crises in LMICs.
World Bank: Many questions and concerns remain, despite some additional clarity
As anticipated, the operationalisation of the World Bank’s Roadmap and IDA21 replenishment were the focus of discussions about the World Bank during Springs (see Dispatch Springs 2024).
While the ‘Bigger Bank’ narrative remained front-and-centre, substantial attention was devoted to the Bank’s new Corporate Scorecard, the eight Global Challenges Programs (GCPs), hybrid capital and Liveable Planet Fund. The last three received a significant boost with 11 rich nations pledging $11 billion to them on 19 April.
In light of persistent questions about the robustness of the Bank’s climate financing figures (see Observer Autumn 2022), civil society – and, indeed, shareholders – welcomed the Bank’s commitment to measure development outcomes rather than inputs and outputs. The Bank’s stated commitment to transparency in data and methodology used to track progress against the Scorecard was likewise a positive development. As the Scorecard is more fully developed, global civil society and academia, particularly in the Global South, will continue to call for their inclusion in the process. The gender indicator’s focus on percentage of women using financial services is an example of the need for greater critical outside input – as evidenced by the Independent Evaluation Group’s damming 2023 report on the effectiveness of the International Finance Corporation’s (IFC), the Bank’s private sector lending arm, financial inclusion initiatives to improve gender outcomes.
Despite numerous questions at diverse fora, such as the civil society roundtable with World Bank executive directors, questions about how the GCPs will work remain unaddressed, with no detail of their implications for, decision-making, staffing, funding and coherence with a stated focus to decentralise decision making.
Equally unclear is how the new Knowledge Compact for Action will be integrated into the development of the Bank’s Country Partnership Framework and other existing initiatives, particularly given the likely tension between a strong focus on a ‘faster Bank’, persistent complaints about current stakeholder engagement, and the time and resources required to go beyond perfunctory engagement with civil society and academia from the Global South.
Particularly in light of the Great Reversal report, IDA21 replenishment was a key discussion point at the Meetings, with the Bank pleading for unconditional civil society support, as the replenishment faces serious challenges in donor capitals. An indication of this could be seen in the Bank’s row-back from calls for a ‘historic’ replenishment and a focus on a $100 billion dollar target instead, which would amount to a smaller replenishment in real terms than IDA20’s $93 billion in 2021, given high inflation rates in the intervening years (see Observer Spring 2024).
In every fora where IDA21 was discussed, all parties acknowledged the importance of its grant and concessional lending, particularly given high debt burdens and high cost of capital. Nonetheless, persistent concerns were raised about the policy framework under development and whether it would contribute to the economic transformation required – as evidenced by the startling fact that only 18 of IDA’s 81 countries have graduated in the past 60 years (see Observer Spring 2024). The challenges faced internally in the development of IDA’s policy framework and the urgency of meeting the Bank’s commitment to the Knowledge Compact were made clear by remarks made by the Bank’s Chief Economist for Africa, Andrew Dabalen, in a CSPF event on IDA21 on 19 April, where he refused to admit the Bank had made any policy mistakes in the past, instead holding African states solely responsible for their fate.
